Restaurant franchises sizzle under pressure, but remain resilient

Image by Robert Owen-Wahl from Pixabay

But the sector has not been without its problems: The Covid-19 pandemic saw approximately 3,000 establishments close their doors for good, and persistent power and water outages have had a significant impact too.

Karen Keylock, national retail services manager at Nedbank Commercial Banking says that, although most franchised restaurants have access to their own generators or a landlord's backup power, the associated running costs are mounting and adding to the pressure franchisees are experiencing.

"A recent audit found that the running expenses associated with backup power generation account for between 0,5% and 2,6% of turnover. It’s so problematic that some of these large franchise groups are negotiating diesel pricing at group level to help its franchisees."

Infrastructure challenges hit hard

Load shedding has also wreaked havoc in the food production pipeline, which is affecting the restaurant industry, especially concerning the supply of chicken.

Restaurants and fast-food outlets typically order to very exact specifications, and rolling power outages can result in a shortage of specific-sized portions.

In late December last year, chicken shortages caused by escalating load shedding saw two dominant players close some 70 outlets temporarily.

Power outages have also impacted chip and ice cream production because the production processes cannot begin unless there is a guaranteed four or five hours of uninterrupted power supply – which is impossible when faced with stage 5 or 6 load shedding.

The more recent infrastructure challenges that have resulted in water shortages and outages are also impacting the restaurant industry.

"Clean water is required for numerous functions in a restaurant, including cleaning and cooking, so many of our franchisees have had to install water tanks to continue operating and to meet the operating standards that are required. However, clean water is more difficult to cater for than electricity, as storage tanks are much bigger than generators. These tanks don't always fit into restaurant premises, or the restaurant may be situated in a mall where it is more difficult to install," says Keylock.

The restaurant industry is also under pressure from high food inflation, which fortunately slowed to 5,1% in March from 6,1% in February, according to Stats SA.

"This respite is expected to be short-lived, however, in the wake of the damage inflicted on many crops by the continual El Niño weather phenomenon. With menu price increases of 3,5 to 6%, it has become a balancing act to ensure restaurants remain profitable without pricing themselves out of the market."

There is some good news

Ironically, load shedding has also been advantageous for many of these restaurant groups, particularly fast foods.

A study conducted by a leading South African bank and Visa last year showed that South Africans across all income groups and regions are eating out more, and this trend increases as load shedding stages are raised.

As load shedding stages increase, so does the amount of money spent on eating out, with the highest peak being during stages 5 and 6.

South Africans tend to spend 60% more on eating out during these stages compared with when there is no load shedding, and companies that offer takeaway or fast-food options have benefited from this trend.

"The fast-food category was a third of the size of the restaurant category pre-Covid, but now it is more than two-thirds. This shows just how much consumers’ purchasing behaviour has changed, with households seeking to avoid the challenge of cooking and eating in the dark at home during mealtimes," says Keylock.

More good news is that some of South Africa’s leading franchises, such as Nando’s, Ocean Basket and Steers, have established themselves in other countries in Africa, as well as in Australia, Portugal, the UK, USA and UAE.

They are gaining popularity in many of these countries and have expanded their customer base beyond the South African expats living there.

Systemising helps to future-proof franchise groups

At a recent Nedbank franchiser event held in conjunction with Franchise Coaches, the Ocean Basket operations executive, Jaime de Abreu, emphasised the importance of building reliable business processes to boost business resilience and productivity, particularly in a challenging economic environment.

"When we took a long hard look at our business, we realised that our franchisees and their staff were spending too much time on admin, keeping them away from their guests. We saw franchisees and their staff spending three hours a day doing checks and balances, and we had multiple waiters taking orders for Uber Eats and Mr D. We’re in the restaurant business where the guest comes first, so we set about implementing systems across all our touch points to streamline processes and build efficiencies."

"Our fully integrated systems have yielded many benefits, like reducing our costs and increasing productivity, as well as enabling quicker decision-making capabilities and improved compliance. And, most importantly, we've increased the capacity for franchisees and their staff to focus on our core business: providing a great experience for our guests," concludes de Abreu.